I could write an entire essay on FTSE 100 shares that I love. But right now, I’m focused on one in particular: Legal & General (LSE: LGEN).
Its performance in recent times has been underwhelming. Year to date, in a period where the FTSE 100 has climbed 8.1%, Legal & General is down 6.8%. In the last 12 months, where the index is up 8.5%, the financial services stalwart has lost 0.8% of its value.
But even with that weak performance, I’m bullish. Let me break down why I’m such a big fan of the stock.
A cheap valuation
Today, I think the stock looks cheap. That’s going off its forward price-to-earnings ratio, which sits at just 10.2. For comparison, the FTSE 100 average is around 12.
For a business of Legal & General’s stature, with its strong brand recognition and dominant market position, I think that looks like cracking value on paper.
A second income
I’ve also been using Legal & General to build a second income. With an 8.8% dividend yield, it’s one of the shining stars in my portfolio when it comes to providing passive income.
It may sound lazy, but I want to buy shares today that I can leave in my portfolio for years and decades to come with the confidence that they can keep paying me dividends.
I don’t want to have to keep worrying about whether its dividend is likely to be reduced or axed in the next few years. Of course, it’s impossible to completely mitigate against that as dividends are never guaranteed.
That said, I’m confident that Legal & General will keep providing a stable stream of cash in the future. And that’s a further reason why I like the stock.
It has an impressive track record of emphasising shareholder returns. It’s on track to return up to £5.9bn in cumulative dividends by the end of this year. As part of that, it has been growing its dividend by 5% each year. Management has said it intends to do the same for 2024.
In all fairness, in its recent results, it announced its plans to reduce that to 2% a year from next year onwards. But I won’t be complaining as long as its payout keeps rising, no matter how big or little that rise may be.
The risks
While the combination of a cheap valuation and meaty yield is attractive, I see a few threats.
The largest is the current economic environment. Uncertainty surrounding inflation and interest rates will continue to impact the business. Its assets under management have meandered up and down in recent times as investor confidence has wavered.
Furthermore, despite its dominant market position, there is the ongoing threat of rising competition.
One to consider
But despite these risks, analysts remain bullish on Legal & General. Sixteen analysts offering a 12-month target price have a consensus estimate of 264.4p. That’s a 14.1% premium from its current price.
On top of that, 16 of the 17 analysts giving a stock rating have it as either a ‘strong buy’, ‘buy’, or ‘hold’. As such, if I had the cash, I’d buy some more shares today. And I think it’s a FTSE 100 stock investors should consider taking a closer look at.
